When two elephants fight…

The court has been busy trying to resolve the dispute between Nigeria Liquefied Natural Gas Limited (NLNG) and Nigerian Maritime Administration and Safety Agency (NIMASA) over payment of levies. But beyond this litigation is the need to find a lasting solution to the agencies rift in the national interest EMEKA UGWUANYI, Assistant Editor and OLUWAKEMI DAUDA report.

In the last two weeks, the court seemed to have stepped up efforts to resolve the disagreement between the Nigeria Liquefied Natural Gas Limited (NLNG) and the Nigerian Maritime Administration and Safety Agency (NIMASA). During this period, a Federal High Court in Lagos has heard the case more than three times, which underscoring the importance of the feuding government agancies to the economy.

The Nation gathered that besides the court’s efforts to determine the contentious provisions in the Acts establishing the NLNG and NIMASA and the disagreement over payment of levies or exemption, those in authority are trying to persuade the organisations to reach an understanding and perhaps, settle out of court.

Last week, the court sat more than two times on the case and would still sit on September 19 on it, while other concerned groups also met with the organisation’s officials to broker peace.

At the weekend, both the plaintiff and defendants reached an agreement, which their solicitors confirmed in the court. By this agreement, NLNG has accepted to pay the $158 million to NIMASA. It has earlier paid $20 million. NLNG, however, insisted that despite agreeing to paying the said money, it would continue with the legal battle to determine the legality or otherwise of payment of the levies and charges demanded by NIMASA.

The Managing Director of NLNG, Mr Babs Omotowa said: “We feel we have no option than to now make these payments under protest. In doing this, we have taken into account the overriding national interest; in particular to stem the huge financial and reputational loss the country has suffered as a reliable LNG supplier.”

Background

On May 3, 2013, NIMASA used the operatives of Global West Vessels Specialist Platforms to mount a blockade against all NLNG’s vessels, denying them access to the Bonny Channel from the fairway buoy, at the beginning of the Channel to buoys 17 and 18. Its action was based on what it described as NLNG’s unwillingness to abide by the country’s maritime laws, especially sections of the NIMASA Act that mandates payment of levies based on gross freight on exports and imports and the Cabotage Act.

NIMASA’s Acting Director, Shipping Development, Captain Warredi Enisuoh, said the blockade was to prevent NLNG from continuing in business and would not be lifted until NIMASA was satisfied that NLNG had complied with its Act and Cabotage law.

Enisuoh said there were no gas imports and exports during the period. Ships laden with gas were prevented from exiting the terminal while two vessels that were for loading could not enter the terminal.

The Federal Government asked the Attorney-General of the Federation, among other top government officials, to look into the case. Afterwards, NLNG was asked to pay some of the arrears of the levies demanded by NIMASA. The organisations were asked to meet to agree on modality of payment.

But NLNG felt mistreated, claiming that the Act that established it exempted it from paying such levies. It went to court to seek proper interpretation and determination of the provisions of the Act and NIMASA’s demand.

NLNG’s General Manager, External Relations, Kudo Eresia-Eke, in a statement titled “NLNG complies with government’s directive to pay, seeks judicial interpretation on NIMASA issue, said: “NLNG has today (June 18, 2013), filed a case in the Federal High Court, Lagos against the Nigerian Maritime Administration and Safety Agency (“NIMASA”) seeking judicial clarity and interpretation on the legality or otherwise of the various levies imposed on NLNG by NIMASA, while complying, under protest, with the government’s directive to pay the said levies.

“The protracted dispute between both parties arose as a result of perceived conflict in the enabling Acts of both organisations, namely the Nigeria LNG (Fiscal Incentives, Guarantees and Assurances) Act on one hand and Nigerian Maritime Administration and Safety Agency Act, Merchant Shipping Act and Coastal and Inland Shipping Act on the other hand.

“NIMASA contended that its levies were applicable to NLNG, while the latter argued that they were exempted from such levies and charges by virtue of the NLNG Act.

“NIMASA had filed a suit against NLNG in 2010 claiming entitlement to these levies. After preliminary proceedings were taken and concluded, and the matter was ready for hearing, NIMASA filed an application to withdraw the suit, and on 3rd May 2013 resorted to self-help by blocking the Bonny Channel for two days, thereby preventing ingress and egress of NLNG chartered vessels with attendant financial losses and reputational damage to NLNG and Nigeria in general.

“Following this blockade incident, a series of meetings were subsequently directed by the Federal Government in the past few weeks resulting in the instruction to NLNG to pay the NIMASA levies. NLNG has thus commenced installment payment, under protest, to NIMASA in compliance to the government’s directive, but without prejudice to its right to seek judicial interpretation in the court of law.

“It is instructive to note that Nigeria LNG Limited and its Shareholders still firmly believe in the rectitude of their earlier position that NLNG is duly protected by the provisions of the NLNG Act against the payment to NIMASA of the Sea Protection Levy, the three per cent freight levies on cargo exports shipped by NLNG, and that the two per cent Cabotage Levy on LNG carriers is inapplicable because NLNG’s LNG vessels are not involved in coastal trade or cabotage.

“NLNG is a Nigerian company involved in, almost exclusively, international export business and is thus subject to all relevant national and international laws, standards and ethos with which it must comply. This, amongst others, requires that all its dealings are governed and premised on the universal principles of the rule of law to which the Nigeria Government also affirms its commitment.

“The company has often clarified that the issues it has with payment of any levy, charge or impost has little to do with the amounts involved, but more with the principle of the rule of law, so that it can safeguard its international business which rests squarely on its reputation as a law abiding company, as well as Nigeria’s reputation in the global community.”

NLNG got an injunction restraining NIMASA from demanding levies from it or disrupting its operation through blockades. NIMASA, allegedly disrupted NLNG’s operation by blockading the channel, with NLNG crying out over what it calls violation of court order.”

“These developments are in flagrant disregard of the court injunction issued by the Federal High Court in Lagos in Suit No FHC/L/CS/847/2013 by Honorable Justice M.B. Idris, presiding, on Tuesday 18th June 2013, against the Attorney General of the Federation, Global West, and any other parties including Nigerian Maritime and Safety Agency, NIMASA, from imposing any charges or taking any steps to block, detain or prevent access by the company’s owned or chartered vessels, whether inbound or outbound from Bonny channel or elsewhere in Nigeria.

“It will be recalled that on 3rd May 2013, NIMASA blocked the Bonny Channel preventing entry and exit of NLNG vessels. This led to a series of meetings at the instance of the Federal Government which eventually ordered that the company should pay NIMASA its purported levies.

“In deference to the government, NLNG made a payment, under protest, in the sum of $20 million (approximately N3.2 billion) into NIMASA’s designated account and subsequently approached the court to seek proper judicial clarity and a lasting resolution to the conflict between the NLNG Act and NIMASA Act.

“The potential implications of this current action by NIMASA on NLNG operations are enormous and would impact negatively on its international LNG Buyers, the international financial market, Nigeria to which NLNG contributes four per cent of the country’s GDP, its Shareholders and the investment climate in Nigeria, let alone the reputational impact this may have on Nigeria’s image within the international investment community.”

Some industry stakeholders condemned the action of NIMASA. They were of the view that NIMASA could have exercised self-restraint as a responsible corporate citizen by allowing the court to determine legality or otherwise of NLNG’s demand for exemption from payment of the three per cent freight levies on cargo exports shipped by NLNG, and that the two per cent Cabotage levy.

Why blockade

NIMASA said it mounted a blockade against the NLNG following a collapse of the negotiated settlement between the two parties. NIMASA had also dragged NLNG before the Federal High Court, but when the case dragged on for four years without progress, it withdrew the matter from court in March, this year.

NLNG was said to have opposed the withdrawal but the court allowed the withdrawal and struck out the suit. Following the ruling, NIMASA began enforcement of the provisions of its 2007 Act.

NIMASA, said the Act, which exempts NLNG’s wholly-owned subsidiary, Bonny Gas Transport Limited and other chartered third party vessels had been repealed by section 63 (1)(a) of the NIMASA Act of 2007, while the new Act provides in Section 15 (a) that NIMASA shall be funded by money accruing to it through the three per cent of gross freight from all international inbound and outbound cargo from ships or shipping companies operating in Nigeria to be collected and paid over to the agency to meet its operational costs.”

NIMASA’s Deputy Director and Head, Public Relations, Isichei Osamgbi, in a statement titled “NIMASA serves detention order on NLNG vessels,” explained reasons for the blockade. He said: “The Nigerian Maritime Administration and Safety Agency (NIMASA), has today in its enforcement of Nigerian laws, served detention notices/orders on vessels belonging to/chartered by the NLNG.

“This course of action was forced on NIMASA by the NLNG’s subsequent refusal or/and failure to abide by the outcome of the negotiated settlement arrived at through the mediation process it willingly instigated and subscribed to, after reaching agreement with NIMASA on its outstanding debt and paying $20 million out of it and its continued flagrant disregard for Nigerian laws.

“Contrary to NLNG’s position, NIMASA is not aware of any court order against it or any suit brought by NLNG against NIMASA.

“By its action, the NLNG has trivialized the mediation process and the position of the Federal Government of Nigeria whose Nigerian National Petroleum Corporation owns and holds 49 per cent of the shares in NLNG and which endorsed the agreement reached that NLNG should pay its taxes/levies and observe all its obligations under the laws of Nigeria in which it is operating.”

Issues

The provision on which NIMASA stands is the first schedule of the Fiscal Incentives, Guarantees and Assurances of NLNG Act, which says: “Tax relief period Notwithstanding the provisions of section 10 of the Industrial Development (Income Tax Relief) Act, the tax relief period of the Company shall commence on the production day of the Company and shall continue for a period of ten years, so however that the tax relief period shall terminate at the first anniversary date after the first five years when the cumulative average sales price of liquefied natural gas reaches US 3 dollars/mmbtu as calculated in the First Schedule to this Act in accordance with which such calculation shall only be made annually at each anniversary date.

First Schedule. Early Termination of Tax Relief Period (Section 2.)

“1. The cumulative average sales price is calculated at each anniversary date as follows (a) for each period ended on an anniversary date, calculate the annual average sales price of liquefied natural gas by dividing the total invoiced sales of liquefied natural gas in the twelve months ending on the anniversary date in US$, by the total invoiced deliveries of liquefied natural gas in Millions of British Thermal Units, in the same period; (b) calculate the Nigeria LNG Index for each of the periods between the production day and the anniversary date, by multiplying the US Dollar/SDR index at the end of each period with the CPI at the same date, dividing the result by 1.9924344, or such other denominator as gives an answer of 100 for 31 December 1987, in the event that the CPI is rebased; (c) divide the annual average sales price for each period (i) by the Nigeria LNG Index for the same period; (ii) to calculate the adjusted price for the period; (d) calculate the cumulative average sales price for the period from the production day to the anniversary date by dividing the sum of the adjusted prices (c) for each period from the period in which the production day falls to the period which ends with the anniversary date by the number of such periods.

“2. For the purposes of this Schedule (a) anniversary date means the anniversary of the Production Day and each anniversary thereof until the ninth anniversary; (b) the US Dollar/SDR Index shall be the figure published by the International Monetary Fund in the publication titled “International Financial Statistics” for the end of the month in which the anniversary date falls for the United

States dollar/Special Drawings Right Index (series “su United States”) or if that publication ceases then in its successor or a comparable United States publication of good standing; and (c) the CPI shall be the figure published by the International Monetary Fund in the “International Financial Statistics” for the end of the month in which the anniversary date falls for the Industrialised Countries Consumer Price Index (series 110) or if the publication ceases then in its successor or a comparable United States publication of good standing; (d) period means 365 calendar days (366 in a leap year) preceding an anniversary date. Others include section 15(a) of the NIMASA Act 2007 and section 43(a) of the Cabotage Act 2003.

The NLNG stands on the provision of the second schedule. Second Schedule Guarantees and Assurances to Nigeria LNG Limited and its Shareholders (Section 9.) 1993 No. 113.

“The Federal Government of Nigeria (in this Act referred to as “the Government”) in recognition of the magnitude of, and in consideration of the investments which shall have to be made in order to prosecute the venture described in the shareholders’ contract dated 19th May, 1989 between the Nigerian National Petroleum Corporation, Shell Gas B.V., CLEAG Limited and Agip International B.V., as amended, from time to time (such shareholders’ contract, as so amended in this Act referred to as “the contract”) hereby grants to the Company, its successors and to each of the shareholders, from time to time (in their capacity as such), the guarantees, assurances and undertakings following hereunder. These guarantees, assurances and undertakings shall have effect from the date hereof, and so long as the Company, or any successor thereto, is in existence and carrying on the business of liquefying and selling liquefied natural gas and natural gas liquids within and/or outside the Federal Republic of Nigeria.

“The guarantees and assurances are as follows: 1. The Government shall do nothing to render invalid unenforceable rights and obligations arising under the contract and the other contracts and arrangements contemplated in the contract, to the extent that such rights and obligations are not illegal in Nigeria and do not offend against Nigerian public policy and provided that such contracts have been kept validly subsisting by the parties thereto, it being understood that such other contracts or arrangement s will not be deemed to be illegal or contrary to Nigerian public policy for the sole reason that the requisite government actions referred to in clause 6 hereof have not been effected.

“2. The venture shall be subject to the fiscal regime contained in the provisions of this Act. Such fiscal regime shall not be amended in any way, except with the prior written agreement of the Government, the Company an d each of the Company’s shareholders.

“3. Without prejudice to any other provision contained herein, neither the Company nor its shareholders in their capacity as shareholders in the Company, shall in any way be subject to new laws, regulations, taxes, duties, imposts or charges of whatever nature which are not applicable generally to companies incorporated in Nigeria or to shareholders in companies incorporated in Nigeria, respectively.”

Legal battles

The Federal High Court, Lagos, has heard the preliminary objection brought by the defendants in a suit by the NLNG Limited against the Attorney-General of the Federation and others. Justice Mohammed Idris refused to re-affirm an order he made restraining NIMASA from detaining NLNG’s vessels.

Justice Idris made the order on June 18 against the Attorney-General of the Federation, Mohammed Adoke (SAN), Global West Vessel Specialists Nigeria Limited and its Managing Director Mr Romeo Itima.

The order, restrained the defendants, either acting for or deriving authority from the Federal Government, including NIMASA, from charging three per cent of gross freight earnings, tax, charges or dues on all of NLNG’s in-bound and out-bound cargo owned by it or its contractors or subsidiaries, pending the hearing and determination of the motion for interlocutory injunction.

The government and Global West had asked the court to discharge the ex-parte order because it was made against NIMASA, who is not joined as a party to the suit, adding that full facts were not disclosed to the court in seeking the order.

But Justice Idris struck out the Attorney-General’s application on the ground that it was filed outside the time permitted by the court rules.

The court also dismissed Global West’s application because there was no suppression of any material fact, noting that the company could be sued on behalf of its principal (NIMASA).

Shortly after the ruling, NIMASA’s lawyer Wole Akoni (SAN) urged the court to reaffirm the ex-parte order. But Global West’s lawyer Abiodun Owonikoko (SAN) opposed the application, urging the court not to be tempted to fall into such trap.

Justice Idris ruled that since the defendants were challenging his jurisdiction to entertain the suit, he would deal with the issue first. He said: “The only jurisdiction I have now is to hear the objections of the defendants.”

When the case came up again, Akoni told the court that settlement talks had failed, while the defendants proceeded with their pending applications.

“It appears to us that NIMASA is bent on stifling our business. NLNG has paid dividends to the Federal Government in billions. We even offered to continue to pay but they rejected our offer,” Akoni said. After Akoni’s submission, the government’s counsel, Fabian Ajogwu (SAN) moved his application seeking to discharge the ex-parte order on the grounds that the order was essentially made against NIMASA, which was not joined as party. NIMASA has also filed an application seeking to be joined as a party to the suit. According to Ajogwu’s application, the government is contending that NIMASA is a body corporate with statutory powers to sue and be sued in its own name and that its non-inclusion as a party was a violation of the principles of fair hearing.

Consequences

Owing to the NIMASA blockade, the company said it lost over N76 billion ($475 million) in revenue, 65 per cent of which belongs to the Federal Government, which has thus lost about N50 billion in dividend and taxes, among others.

The blockade had also led to scarcity of cooking gas with attendant spiraling cost and worsening hardship on the populace, reduction of domestic gas to power, shutdown of offshore and onshore production facilities, among others. In addition it has caused huge reputational damages to NLNG and Nigeria.

The price of liquefied petroleum gas (LPG) also called cooking gas, has risen from between N2,800 and N3,000 to N3,500 and more for 12.5kg cylinder.